Merger of five associate banks, BMB cleared
The country’s largest bank State Bank of India (SBI) said on Thursday that its board has approved the merger of its five associate banks and Bhartiya Mahila Bank (BMB) with itself. Three out of the five associate banks — State Bank of Mysore, State Bank of Bikaner & Jaipur and State Bank ofTravancore — are listed while the remaining two — State Bank of Hyderabad and State Bank of Patiala — are unlisted with SBI owning 100 per cent in them.
According to the approved swap ratios, the deal involves allotting 28 shares of SBI for every 10 shares held in State Bank of Bikaner and Jaipur (SBBJ), and 22 shares of SBI for every 10 shares held in State Bank of Mysore (SBM) and State Bank of Travancore (SBT). SBI will give 4,42,31,510 shares with face value of Re 1 each for every 100 crore equity shares of Bhartiya Mahila Bank.
Dinesh Khara, managing director, associates and subsidiaries, SBI, told Financial Chronicle, “The swap ratios have been cleared today and now the scheme has to be approved by the RBI and the government after which it would come into force. The government’s shareholding in the consolidated entity would be 59.70 per cent, a fall of 48 basis points after the merger.” “Besides cost benefits, SBI being a large bank has the ability to commit the resources for managing risk and compliance better and the merged entity will thus have better risk and compliance functions,” added Khara. The swap ratio will also have to be approved by the boards of the associate banks. While SBI had appointed Ernst and Young as valuer and JM Financial for providing fairness opinion, SBBJ and SBT selected PWC and Walker Chandiok and Company as valuer, respectively. Abizer Diwanji, partner and national leader (financial services) at Ernst and Young, explained to FC, “We worked out the valuations based on three factors — market capitalisation, comparable company multiple and net assets. We gave weightage to each of the method. We do a like to like comparison and therefore we made the same adjustments to each bank, but while the share price of three banks (SBI, SBBJ and SBT) kept pace, in case of SBM the share price ran up quite significantly since the merger was announced and therefore many feel the deal is not so good for SBM.” Speaking about the benefits, Diwanji said, “The merger benefits will flow in if SBI is able to rationalise branches, reduce operating costs and achieve economies of scale. The other major benefit is that the consolidated entity would have a better say in recoveries.”
Parag Jariwala, vice-president, Institutional Research at Religare Capital Markets, said, “Barring SBM shareholders, the share allotment ratio is broadly even for all the holders. In our view, even if the allotment ratio is favourable/unfavourable for the shareholders of associate banks, it is unlikely to make any difference since SBI holds 75-90 per cent in these banks.”
“SBI’s asset quality is better than its peers. However, we don’t see any material improvement in SBI’s asset quality upon the merger since the asset quality of its associate banks is weak. In addition, the clean-up exercise should continue for associate banks in Q2 of FY17 since their asset quality review list is substantially different from SBI. This would further deteriorate their asset quality,” added Jariwala. SBI holds 100 per cent in two unlisted associate banks — State Bank of Hyderabad and State Bank of Patiala. Among the listed associate banks, it holds 75 per cent in SBBJ, 79.09 per cent in SBT and 90 per cent in SBM. In a filing on BSE, the public sector lender said, “The central board of directors of SBI has accorded its approval to the scheme of acquisition of State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of Travancore (SBT) and Bharatiya Mahila Bank (BMBL) by State Bank of India (the scheme) under Section 35 of the State Bank of India Act, 1955,subject to approval of the scheme by Reserve Bank of India and Government of India.”CH Venkatachalam, general secretary, All India Bank Employees Association (AIBEA), told FC, “Shareholders of the associate banks are not getting anything but equal value of SBI shares. So in terms of value, both are same. We are saying that the associate banks are performing better than SBI.” Speaking about bad loans of the associate banks, Venkatachalam said, “The big bank SBI has forced associate banks to mark many corporate accounts that are non-performing in their books even though these accounts are good loans for them. So the associate banks have been forced to book a loss even though the accounts are performing for them. SBI will gain through this cheap tactic, as the provisions made by associate banks will be transferred to its books and it can report better profits.”
“Around eight lakh officers will go on strike on September 2 against the dubious banking reform policies,” added Venkatachalam. Last month, the Union cabinet gave the go ahead to the merger of SBI with its five associate lenders and the Bhartiya Mahila Bank. The size of the balancesheet of the consolidated bank after the merger will be around Rs 37 lakh crore from Rs 28 lakh crore at present. SBI chairman Arundhati Bhattacharya had said the merger was a win-win scenario for both SBI and the associate banks. Not only will the SBI network expand, its reach would multiply.
“The group will get the benefit of efficiencies to be created from rationalisation of branches, common treasury pooling and proper deployment of a large skilled resource base,” the SBI chief had said.
A significant aspect of employee rationalisation will be aligning the pay structures. The associate banks have a little over 70,000 employees, or 34 per cent of SBI’s employee base. SBI first merged State Bank of Saurashtra with itself in 2008. Two years later, State Bank of Indore was merged. Global rating agency Moody’s had said the merger will have limited
impact on SBI’s credit metrics, given that SBI already fully owns SBH and SBP and has majority stakes in the other three associate banks. In addition, BMB only started operations in 2013 and accounts for less than 0.1 per cent of SBI’s total assets.
SBI stocks opened the day at 246.05 points and closed 0.79 per cent high at 248.20 points on Sensex, while on Nifty, its scrip opened at 246.90 and ended the day 0.79 per cent up at 248.20 points.